Nintendo New Wii to Face Games Landscape Reshaped by Apple

Satoru Iwata, president of Nintendo Co., discusses the Nintendo 3DS handheld video game-player during a keynote speech at a game developers conference in San Francisco, California, U.S., on Wednesday, March 2, 2011. Photographer: Noah Berger/Bloomberg

April 26 (Bloomberg) -- Nintendo Co. trounced Sony Corp.
and Microsoft Corp. five years ago by developing a motion-sensing console simple enough for kids and grandmothers to play.
The Wii’s successor may face a new rival: Apple Inc.

The world’s biggest maker of video game consoles will begin
selling the next version of its Wii in 2012 and show a playable
model in June at the E3 Expo in Los Angeles, Nintendo said in a
statement yesterday, without elaborating. The stock fell to the
lowest level in more than four years in Osaka today after the
Kyoto-based company reported its smallest annual profit in seven
years and forecast earnings that missed analysts’ estimates.

President Satoru Iwata is counting on the next Wii and its
new 3DS, which allows users to see 3-D images without the need
for special glasses, to revive earnings and fend off competition
from new motion-sensing controllers released by Sony and
Microsoft. Nintendo will also contend with $0.99 games on the
iPhone and free titles offered on social networking sites, such
as Zynga Inc.’s CityVille simulation game for Facebook users.

“Nintendo’s current situation is very different from when
the company introduced its first DS players and Wii,” said
Mitsushige Akino, Tokyo-based chief fund manager at Ichiyoshi
Investment Management Co. “People these days choose mobile-phone games over the DS and Wii because they’re cheaper, easier
to access and play, without having to buy expensive game
players.”

HD Wii

Nintendo shares fell as much as 4.9 percent to 19,330 yen,
the lowest intraday level since July 3, 2006. The stock has
fallen 18 percent this year, triple the benchmark Nikkei 225
Stock Average’s drop, amid concern earnings are deteriorating in
the face of mounting competition. Nintendo has tumbled more than
70 percent since peaking at 71,900 yen on Oct. 31, 2007.

While Iwata declined to provide details on the next Wii
yesterday, he ruled out the use of 3-D as the next Wii’s main
feature because consumers haven’t widely embraced 3-D TVs. The
new system may feature a controller with a touch-screen display,
support high-definition pictures and sell for $350 to $400 each,
trade publication IGN reported this month, citing unidentified
people familiar with the project.

“Sony and Microsoft are unlikely to be able to release
their next generation consoles in time” for the new Wii’s
debut, said Jay Defibaugh, an analyst at MF Global FXA
Securities in Tokyo. “By waiting until E3 to demonstrate the
new machine, Nintendo effectively prevents rivals from copying
its ideas.”

Apple Threat

Apple, the biggest technology company by market value, is
expanding into games, introducing a Game Center feature last
year to iPhone and iPad users to play multiplayer games. The
Cupertino, California-based company has sold more than 15
million iPads in the past year and more than 90 million iPhones
in its four-year lifespan, according to Apple this month.

“The booming gaming activities on Apple devices is more of
a threat to handheld consoles,” said Jia Wu, an analyst at
researcher Strategy Analytics. “Casual gamers may be reluctant
to spend a few hundred dollars for a new console and another $50
for a game as they can get 99 cents games on Apple devices.”

Pricing Pressure

Games on social networking websites are also gaining in
popularity. Zynga’s top five most popular applications on
Facebook attracted more than 200 million monthly active users,
according to researcher AppData.com. The company’s free
CityVille game ranks as the most popular Facebook application
with 88.3 million users logging in at least once a month,
according to the researcher.

“These games are a source of downward price pressure,”
Iwata said at a briefing in Tokyo today. “Our job is to
convince people that there is value in paying money for games.
If we can clear that hurdle there is more growth ahead.”

Five years ago, Nintendo shunned the lifelike graphics,
faster processors and high-capacity memory pursued by the
competition. Instead, it opted to develop intuitive controls
that allowed players to swing the controller as a sword or golf
club with games such as “Wii Sports” and “The Legend of
Zelda.”

At its debut, the Wii cost less than a half of the price of
PlayStation 3 and was about $50 cheaper than the most basic Xbox
360 because it doesn’t have a hard disk drive and cannot display
high-definition images. The PS3 has a Blu-ray high-definition
DVD player and the Cell processor that is 40 times faster than
the chip used in the PlayStation 2.

Mounting Competition

Nintendo’s strategy paid off. Nintendo said yesterday it
sold more than 86 million Wii consoles since its 2006 debut. By
comparison, Sony estimates it sold its 50 millionth PlayStation
3 late last month, while Barclays Plc estimates Microsoft had
sold about 52 million Xbox 360 consoles as of the end of March.

Still, the competition is catching up. In November,
Microsoft introduced its Kinect motion-sensing controller, whose
sales reached 10 million units within four months. Tokyo-based
Sony, whose PlayStation player dominated the previous generation
of game consoles, began selling its own motion-sensing Move
device, a black controller with a colored ball in front, for the
PlayStation 3 in the U.S. in September.

With handheld game players, a market Nintendo has dominated
since the Gameboy in 1989, the company is seeking to defend its
lead against Sony’s latest PlayStation Portable.

Profit Falls

The $250 3DS, which went on sale in the U.S., Europe and
Japan in the past two months, also faces competition from the
iPhone and iPad, as well as smartphones and tablets that run on
Google Inc.’s Android software, which have attracted gamers with
third-party applications.

Sony, the world’s second-largest maker of portable game
players, in January said it will offer the new model of the PSP
by the year-end holiday season. The device, code-named NGP, will
offer access to third-generation wireless networks and have
front and rear touch pads, it said.

Nintendo yesterday reported profit tumbled 66 percent to
77.6 billion yen ($949 million) in the year ended March 31 as
demand for the DS and Wii slumped. While the company forecast
sales and profit will rise this fiscal year, the projections
fell short of analysts’ expectations.

“Anticipation of the announcement of a strong concept for
its next generation console at the E3 trade show in June will
need to support the stock,” MF Global’s Defibaugh wrote in a
report yesterday. “Nintendo needs to put forth a convincing
plan for reigniting interest in its newly released 3DS handheld,
which is off to a sluggish start.”